Galapagos Island with birds flying over
Your Estate Plan and the Galapagos

March 31, 2011

Contacting Julia

Estate Planning attorney Julia P. Wald 

Julia P. Wald welcomes your phone calls at



Julia gives presentations for many community groups and non-profit associations.


Her next free seminar

will be at the

1st Unitarian Universalist Church of San Francisco

Fireside Room

Sunday, April 3 at

12:30 pm.


Call us for more information, or visit us on the web at  



You might not easily recognize the connection between estate planning and the Galapagos Islands. You may never have considered estate planning and Charles Darwin in the same moment.  


But: estate planning is evolving, as is life on the Galapagos as described by Darwin.  


In particular, the federal gift tax law has evolved considerably to its present state in 2011.  


Left-facing tortoise 

There are now many ways to make gifts during your lifetime instead of waiting until your death.  


Assuming you are financially secure and have sufficient personal assets for your living expenses, there are many different techniques you can employ to assist your family members and others with lifetime gifts. 


Join us on an exploration of the evolution of estate planning (accompanied by some photographs of Julia's earlier exploration of a hotbed of evolutionary zeal, the Galapagos).


Gift Tax Planning


To understand gift tax planning, you need to know this. The "exemption amount" is the amount that can go estate and gift tax free by lifetime gift or by after-death devise. 


The evolution of the exemption amount is SPECTACULAR. The size of the exemption amount evolved slowly in the first decade of the 21st Century until it was $3,500,000 in 2010. In 2011 it leapt to $5 million. That evolution is more wondrous than the evolution of the Giant Tortoises found only in the Galapagos.


Evolution at work: the tortoise and the gift tax

A further bit of marvelous evolution is the unification of the estate and gift tax.


Before 2011, the federal gift tax exemption was capped at $1,000,000 even when the estate tax exemption was as high as $3,500,000.  


Now both taxes have an exemption of $5,000,000.


There are issues with generation-skipping transfer taxes when making certain gifts.


These will not be covered here but must be considered in relation to certain gifts.




Annual Exclusion Gifts


Many of you remember that one element of your estate plan was to take advantage of the annual exclusion amount of $10,000. Ten Thousand Dollars was the amount you could give without:

a. Having to file a gift tax return;

b. Having to pay gift tax; or

c. Using up part of your exemption amount.


Blue Footed BoobyThe $10,000 amount has evolved so that in 2011 the amount not recognized as a gift is $13,000, annually.


Let's call this your "annual gift freebie." That evolution is as beautiful and unexpected as the evolution of the Blue-Footed Boobies of the Galapagos, one of whom is on the right looking at you.


Consider this when thinking about gifts:


  • You can make an annual exclusion gift of $13,000 per year to as many recipients as you wish without incurring any gift tax liability or even having to file a gift tax return and without reducing your exemption amount. Your spouse can use your money to make these $13,000 annual exclusion gifts to the same recipients under the so called "gift splitting" rules. Alternatively, your spouse can use his/her separate property or the community property.      
  • Let me do the math: You and your spouse can give your son, his wife and their two children $104,000 gift-tax free. That is enough to make the Frigate birds puff up their bright red throats. (Well, that and a prospective mate).
  • If an annual exclusion gift is made in Trust, the annual exclusion is available only if the beneficiary is given a limited withdrawal right under the so called "Crummey Trust" rules.  

Call us if you wish these "Rules" explained.   



Direct Payments For Education And Health

Frigate Bird in the GalapagosAnother estate planning technique with no federal gift tax consequences is to make direct payments to an educational institution for tuition for the benefit of another person.  


Additionally, you may make direct payments to a medical care provider for services rendered to another person. None of the direct payments for tuition or medical expenses are subject to gift tax. But they MUST be paid to the provider not to the beneficiary.

Big Gifts

For gifts other than those mentioned above you can make gifts up to $5,000,000 without tax because of the lifetime exemption gift tax amount of $5 million.


To make such a large gift does use up the exemption amount in an amount equal to the value of the gift. One advantage, however, of making such a lifetime gift is that you can shift to the recipient the appreciation on the transferred assets. So, if you give stock worth $100,000 in 2011 and that stock is worth $500,000 at the time you die in 2025, by making the gift in 2011 you keep the $400,000 of appreciation out of your estate; you will not have to include this appreciation in calculating the value of your estate.


The disadvantage to lifetime gifts is that the donee does not get the "step up" or "step down" in basis that he/she would receive for a devise at death. A "step up" in basis means that the income tax basis of the asset given away will be valued at the market value as of the date of death. If the asset needs to be sold, then a "step up" in basis will result in less or no capital gains tax.  "Basis" is explained in the February 2011 newsletter. 

What Counts as a Gift


In order to qualify as a gift, the gift must be of a present interest. A present interest is defined as an unrestricted right to the immediate use, possession or enjoyment of property or the income from the property. Gifts may be transferred outright to the donee or to a custodian for a minor or to an irrevocable trust. Gifts can include the transfer of a part of a family business, legal life estates and assignment of a remainder interest. A gift can be helpful to children when they need funds to invest in a business or in rental property.

Other Evolving Things to Know

  • You can also make unlimited gifts to a spouse who is a U.S. citizen. Gifts to non- U.S. citizen spouses are limited to $136,000 per year effective for 2011.    
  • In California, a married person cannot make a gift of community property without the written consent of his or her spouse. Transfers made with the intent to defraud creditors are void. As always, you need to consult with an estate planning attorney to discuss your particular situation and possible lifetime gifts.


Estate planning continues to evolve as do many life forms.  


Given that the present estate gift tax law is only in effect until the last day of 2012, we need to be ready for further evolution.  


Call our office if you would like estate planning advice related to gifting or, just call to say "Hello".




Julia P. Wald, Esq.